The Pound New Zealand Dollar (GBP/NZD) exchange rate eased higher during Thursday’s European session, as a risk-on mood combined with strong economic performance helped boost the Pound (GBP) against its peers.
At the time of writing, GBP/NZD is trading at NZ$2.0984 - marginally higher than this time on Wednesday.
Pound (GBP) Exchange Rates Strengthen amid Economic Optimism
The Pound trended up against its peers yesterday, buoyed by a combination of factors. Risk-on sentiment supported the currency alongside recent economic data and hawkish comments from several Bank of England (BoE) policymakers.
As fears of an imminent escalation in hostilities between Iran and Israel eased, risk appetite increased. While Israel’s attacks on Gaza continue, experts interpret that the threat of widespread international conflict has diminished.
Alongside risk-on sentiment, the Pound was supported by a positive assessment of the latest economic data from the UK. April’s data revealed on Tuesday that new business volumes have increased across the private sector, while expansion in the service sector over the course of the month far exceeded economists’ estimates.
Given the apparent strength of the economy, central bank policymakers may consider that higher interest rates can be endured for longer. Hawkish comments earlier this week from Chief Economist Huw Pill and BoE official Jonathan Haskel hinted their support for a delay to interest rate cuts:
Speaking at a seminar at City University's Bayes Business School, Haskel remarked that ‘We had a very tight labour market and we still have very tight labour market... My view is the labour market is central to the inflation aspect.’ He added that interest rate cuts should be ‘a long way off.’
Yet Bank of England Governor Andrew Bailey has indicated that he expects inflation to ease over the coming months, complicating rate cut predictions. GBP investors appeared unconcerned by current interest rate uncertainty, however, continuing to trade on bullish momentum.
New Zealand Dollar (NZD) Exchange Rates Supported by Risk-On Mood
Despite trending lower against the Pound yesterday, the New Zealand Dollar (NZD) managed to climb in several other exchange rates as a risk-on mood buoyed the currency.
A lack of significant data from New Zealand led ‘Kiwi’ traders to contemplate the geopolitical situation, trading dynamics and the latest inflation release from NZ’s closest trading partner: Australia. An apparent cooling in tensions between Iran and Israel was broadly understood to be the reason for improved sentiment in the markets.
International tailwinds also issued from China – a close trading partner to New Zealand. On Tuesday, the China Securities Journal reported that the country's central bank plans to reduce its Medium-term Lending Facility (MLF) rate to decrease funding costs.
Considering that lower interest rates could lead to increased demand for commodities, New Zealand may benefit from increased exports to the world’s second-largest economy. Following months of concern regarding stagnation in China’s economy, the news marks a positive turn for the Asia-Pacific region.
Meanwhile, expectations for a hawkish monetary policy stance from the Reserve Bank of Australia (RBA) in response to stronger-than-forecast inflation lent second-hand support to the New Zealand Dollar.
The Australian Dollar (AUD) firmed on Thursday as experts pushed back their bets for an interest rate cut; an action that was reflected by a rising yield on the 10-year Australian government bonds. Given the positive correlation between the ‘Aussie’ and the New Zealand Dollar, NZD enjoyed additional tailwinds.
GBP/NZD Exchange Rate Forecast: Domestic Data Thin on the Ground
The Pound New Zealand Dollar exchange rate is likely to trade today upon Australia’s Producer Price Index (PPI), in addition to the latest US inflation data.
Australia’s PPI is expected to show that producer inflation eased in Q1 of this year; if the data prints as expected, it could undermine earlier indications that prices continue to climb across the board. If the RBA’s monetary policy response is called into question, AUD could weaken, consequently dampening support for the ‘Kiwi’.
Into the European session, the US PCE core price index is expected to remain unchanged for the month of March, and to show easing inflation over the course of the year. The Fed’s preferred measure of inflation, the index is likely to have an effect on the bank’s assessment of the economy: if core inflation eases as expected, rate cut bets may be brought forward.
Consequently, volatility in the US dollar (USD) may spark risk-off trade: if bearish sentiment prevails, GBP/NZD is likely to climb as the Pound is the least sensitive to risk of the two currencies.